March Madness: How has Bitcoin done relative to the S&P 500 and inflation?

by philg

For basketball fans, today is the beginning of March Madness. For the rest of us, the primary kind of madness to which we’ve been exposed is the idea that humans can control a respiratory virus with bandanas as PPE. But what about the second maddest form of madness, i.e., the belief that “they’re not making any more bits” and therefore that Bitcoin is inevitably valuable?

What if we’d bought the S&P 500 and reinvested the dividends over the past year? How would that compare to a dividend-free investment (not to say “speculation”!) in Bitcoin? And how have both strategies fared compared to the inflation that we are assured is both minimal and transitory?

Let’s look at the S&P 500. It seems to be up about 6.6 percent. Then add in a dividend yield of just under 2 percent and we get an 8.6 percent bump in nominal terms:

Of course, inflation has been at least 10 percent (if we count the cost of buying a house) and therefore an investor in the S&P 500 has actually lost money over the past year (he/she/ze/they is down about 20 percent measured against the cost of buying a house in South Florida). Bitcoin is an inflation hedge like gold and therefore must surely have done better, right? Yesterday’s chart:

Down 32 percent! What about gold itself? Or, in this case, GLDM:

Up 15 percent, so losing value compared to real estate but perhaps roughly even with most other items.

What if we’d bought tanker trucks full of gasoline? It has gone up from $2.71/gallon to $4.10/gallon (EIA.gov), a 51 percent bump in nominal dollars.

13 thoughts on “March Madness: How has Bitcoin done relative to the S&P 500 and inflation?”

    • Movie already out of date. These days they would hit that with a javalin and then carry on in their Tesla’s. Unless the grid is down and then the fallback plan is carbon fiber bicycles.

  3. Everyone traditionally loses to inflation. The government eventually raises interest until houses, oil, stonks, & whatever the asset of the week is plummet. Don’t tell that to millennials who have never known a cyclical bear market.

    The government is too far in debt to meaningfully reduce inflation like it did in 1980. They have to keep the interest rate below .25% on wednesday & continue printing money at whatever rate is required to manetain liquidity, while jawboning speculators with some bullshit. There might be another period of sideways movement like 2001-2005 before a sprint to 1 million on the dow meter followed by a crash back to 600,000.

  4. Our host should launch his own crypto and we could have a naming contest here in the comments.

    I’ll kick it off:

    1) The Mindy
    2) The Contrail (or maybe Contraire!)

  5. I also have to add: When this whole Bitcoin thing really started to roar, make people stand up and pay attention, the Wall Street Journal did one of those “Man on the Street” video segments that I thought was unusually well-done. They stopped into several places in Manhattan where Bitcoin could actually be used (this is pre-Plague): Restaurants, shops, etc. One place was a French-themed restaurant where they announced their forward thinking with little stickers on the door, and the reporter paid in Bitcoin for his meal (good food!) while interviewing the owner, who took pains to describe his support for Bitcoin not as a speculative investment but a “store of value” – like a big diamond where you could keep snapping perfect, permanent, hardest-substance untraceable new atoms into the lattice whenever you wanted to “store some value.”

    Meanwhile I’m watching the sparkle in this guy’s eyes and I kept thinking of the people I used to see at OTB joints working the ponies…

  6. @PhilG Your views are generally provocative and instructive, and this one is no exception. Even so, one must ask on what basis you have chosen to measure comparative performance on a trailing-12-month time period? Any investor should take a hard look at their actual performance in various asset classes, still, would you agree the full picture demands 2-year, 5-year, decade performance comparisons? (or even longer)

    Some view the concept of peak oil as a liberal canard, and they may be right. The recent situational spike in prices notwithstanding, it’s remarkable to me how stable the price of oil has been for decades, even measured in nominal uninflated dollars. Here’s the trailing decade, for example:

    https://www.macrotrends.net/2516/wti-crude-oil-prices-10-year-daily-chart

    (Left as an exercise to the reader a comparison to gold, bitcoin, S&P, etc…..)

    • “Some view the concept of peak oil as a liberal canard, and they may be right.

      The current Russian / NATO expansion drama looks like a long game oil war to me. Cage the Russian Bear and put on starvation diet and then it will sell its oil and gas on the cheap.

      If there was unlimited supply of cheap and easy to refine oil available in Canadian tar sands (strip mining old growth forest), gulf of mexico ( deep water horizon) and fracking then that would be the path of least resistance.

      Russia may still end up sanctioned and broke but if their oil and gas goes off market (or to Asia) then it may export stagflation as part of a pyrrhic victory to avoid the cage.

    • > The current Russian / NATO expansion drama looks like
      > a long game oil war to me.

      The analysis in The Fraying of the US Global Currency Reserve System points the same way. The article observes that Saddam’s “Weapons of Mass Destruction” became a terrible threat after Iraq started selling oil outside of the petrodollar system. Did the US poke the bear into war because of similar disobedience?

    • I find it very hard to detect a consistent or rational oil/gas policy. Long term it should be in the interest of the U.S. to keep their own reserves and use everyone else’s first (this point is consistently swept under the rug by pro-fracking cheerleaders).

      The U.S. wants to discourage Germany/Russia relationships, but using Russia’s gas first is not irrational long term (I’m also not sure if isolating Russia completely is wise).

      Short term, Democrats accuse Republicans of having close Russia ties and Republicans accuse Democrats of having their hands in the Ukraine (Burisma).

      Short term, interest groups may want to sell liquid gas from the U.S. or Qatar to Europe. Then there is a new proposed Mediterranean pipeline from Israel to Europe:

      https://en.wikipedia.org/wiki/EastMed_pipeline

    • “I find it very hard to detect a consistent or rational oil/gas policy

      I don’t understand the oil and gas policy either. Buying foreign supply sounds better than using up domestic supply.

      Conservatives make noises about “energy independence”
      while Liberals want to import half of the 3rd World to clog the roads with that many more cars and trucks.

      The hard liners are stubbornly pushing NATO onto the Russia borders and if the Russian gas stops to EU , the solution is “LNG”. Because that makes sense.

  7. Canadian tar sands are not in majestic old growth forests… mostly shrubbery,, savannah, bush.

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